Can a brand or trade name have value apart from the business? Yes. However, the ongoing business, if profitable, will enhance the brand value and be enhanced by the brand.
For the profitable business, the value of the brand (IP) is part of the total value of the business enterprise. The brand contributes to business value in one or more of the following ways:
- Excess Profit – margin based on the consumer/client's emotional connection to the brand. He is willing to pay a higher price to enjoy that satisfaction or fulfillment of that expectation of quality.
- Cost Savings – ownership of the brand avoids the payment of a royalty to license the brand (relief from royalty).
- Customer Retention – repeat customers create loyalty and auxiliary product – service expansion and growth. What is the company worth with and without the brand?
A current trend is some industries (e.g. high-tech, retail, hospitality, restaurants, etc.) is to value the brand and sell it to a newly formed entity. The basis for this spin off is usually one of the following:
- Subject company (with brand) is not operating as profitably as possible.
- Brand has application for other products or locations (restaurant) apart from the original business.
- Investor groups are forming funds primarily to purchase brands and receive royalties.